FDI in Retail
The activities related to the sale of goods or services, FDI in Retail and all the entities that sell goods to the ultimate customer, who buys them for personal and not for business use collectively constitute retail sector. It includes all kinds of business entities from kiosks and small scale enterprises to large ones. In addition to the traditional form of businesses, the retail sector includes mail-order and online businesses.
The retail sector in India holds a significant portion of the economy and is one of the sunrise sectors with huge growth potential as more than half of its constituents are unorganized. So, the government has decided to open up the retail sector to global investors through foreign direct investment (FDI).
FDI in retail means that overseas business firms can set up their presence in the country by way of arrangements such as joint ventures or any other kind arrangement with Indian firms to such extent as approved by the Government from time to time. With this decision, international companies were able to increase their presence in the multi-brand retail sector of India. However, they were not allowed to own more than 51 per cent stakes in these establishments.
Reasons for the promotion of FDI in Retail
India’s retail industry is one of the biggest in the world when it comes to privately owned ones. The industry has seen some major restructuring thanks to the FDI structure becoming more liberal than before. The benefits of FDI in retail, as per the experts, carry greater weight age than the cost related implications.
Due to foreign companies entering into the retail sector, new infrastructure will be built to support and build the real estate sector. In turn, the banking sector will also grow as the funds required to build infrastructure will be provided by the banks.
With FDI in retail, operations in distribution and production cycles are expected to get better. Owing to factors such as economic operations, the cost of production facilities will come down as well. This will mean a greater choice of products at lesser and more justifiable prices for the customers.
FDI allows the transfer of skills and technology from abroad and develops the infrastructure of the domestic country. Greater managerial talent will flow in from other countries. The domestic consumer will get the benefit of getting great variety and quality products at all price points. The accelerated market growth and expansion will increase employment in the retail sector. It will also bring in better managerial practices leading to greater success. Higher wages will be paid to the employees by international companies with deeper pockets. Urban consumers will get the benefit of being exposed to international lifestyles.
Disadvantages of FDI in retail
The entry of global companies might force some of the traditional businesses to shut down. FDI in retail might drain out the country’s revenue to foreign countries, which may cause a negative impact on the Indian economy.
There is a possibility that a lot of people involved in unorganised retail business may lose their jobs and businesses.
It is also feared that the domestic organised retail sector might not be competitive enough to take on the international players, which might result in loss of market share for them, which might also lead to the closure of some of their units eventually.
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It might be concluded that like every coin with two sides, FDI in retail might also have its own positive and negative impact, and the same should be introduced into the Indian market with some limitation because a large segment of retail market is being run by small or medium entities, which is directly connected to self-employment, and to negatively impact the possibilities of self-employment might not be in the larger interest of the nation and its people in the long run.